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Development and Outcomes of Investment Treaty Arbitration

The legitimacy of investment treaty arbitration is a matter of heated debate. Asserting that arbitration is unfairly tilted toward the developed world, some countries have withdrawn from World Bank dispute resolution bodies or are taking steps to eliminate arbitration. In order to assess whether investment arbitration is the equivalent of tossing a two-headed coin to resolve investment disputes, this article explores the role of development status in arbitration outcome. It first presents descriptive, quantitative research about the developmental background of the presiding arbitrators who exert particular control over the arbitration process. The article then assesses how (1) the development status of the respondent state, (2) the development status of the presiding arbitrator, and (3) the interaction of these variables affect the outcome of investment arbitration. The results demonstrate that, at the macro level, development status does not have a statistically significant relationship with outcome. This suggests that the investment treaty arbitration system, as a whole, functions fairly and that the eradication or radical overhaul of the arbitration process is unnecessary. The existence of two statistically significant simple effects – namely that tribunals with presiding arbitrators from the developing world made smaller awards against developed states in particular circumstances – suggests that particularized reform could enhance the procedural integrity of arbitration. Irrespective of whether future research replicates the results, reforms targeted to redress possible imbalance in the system have the potential to enhance procedural justice and the perceived legitimacy of arbitration in an area with profound political and economic implications.